Nguyen v QBE Insurance Limited No. Scgrg-98-1281

NGUYEN v QBE INSURANCE LIMITED
[2000] SASC 341

Appeal from a Master

1................ MARTIN J........ The appellant appeals against the decision of a Master refusing an application to join the respondent as a defendant in proceedings instituted by the appellant.

During the evening of 7 October 1995, the appellant attended a function at the Woodville Town Hall. After being threatened by a group of persons, the appellant left the premises. He was assaulted and sustained very serious injuries. The appellant has instituted proceedings against the proprietor of a security firm (“the defendant”) which was retained by the hirer of the Town Hall to provide security for the function. It is common ground between the parties that the defendant has been declared bankrupt. If the appellant succeeds in his action against the defendant, he faces the prospect of being unable to recover any significant damages by reason of the defendant’s financial circumstances.
The defendant held an insurance policy with the respondent. He made a claim for indemnity in respect of any damages that might be awarded against him in favour of the appellant. By letter of 6 May 1999 the respondent denied liability in the following terms:
“Re: Liability Policy No. AD0923488CLI
We refer to your claim for indemnity in respect of Supreme Court proceedings issued against you by one M. Nguyen, being action number 1281/1998.
We have now completed our investigations which disclose that crowd control activities comprised part of your business.
We note that before the inception of cover and renewal you advised that the business did not engage in such activities.
We consider that your misrepresentation was made fraudulently and hereby avoid the policy from its inception pursuant to section 28(2) of the Insurance Contracts Act 1984.
If contrary to our position your misrepresentation was not made fraudulently, then our liability in respect of your claim would in any event be reduced to nil pursuant to section 28(3) of the said Act as cover would not have been granted if the true position had been represented.”
The appellant applied to join the respondent as a defendant in his proceedings for damages. The proposed statement of claim seeks a declaration that the respondent is obliged to indemnify the defendant against any liability to pay damages to the appellant. The application was refused by a Master of this Court. After observing that the defendant would not be able to satisfy any judgment that the appellant might obtain, the Master summarised the purpose of the application in the following terms:
“The plaintiff [appellant] wishes to join the respondent to test the question of whether or not the respondent is liable to indemnify the first defendant for any damages that the plaintiff may recover against the first defendant. Mr Tilmouth QC, counsel for the plaintiff, stated during the course of his submissions that if the respondent is joined as a third defendant the plaintiff will then seek discovery from the respondent of all documentation relating to any insurance between the first defendant and the third defendant material to the matters in question in this action and it is further envisaged that the court will be asked to direct that the issue of whether or not the respondent is liable to indemnify the first defendant be tried as a preliminary point.”
Having referred to a number of authorities concerning the joinder of an insurer of a defendant, the Master concluded as follows:
“In order to establish a case for joinder of the insurer based on JN Taylor Holdings, the plaintiff must establish that there has been a denial of liability on the part of the insurer and that the facts relating to the question of liability between the plaintiff and the first defendant are substantially the facts which also need to be taken into account in determining whether or not the insurer is liable to indemnify the first defendant. It is not in dispute that the insurer has denied liability. The only remaining matter is whether or not there are facts common to the claim and the insurance question. I think it is in relation to this second point that the plaintiff’s case must fail. The plaintiff has not been able to establish that there are overlapping facts. The plaintiff wishes to have the respondent joined as a defendant and then to obtain discovery from that defendant relating to policy questions. That process may or may not make the plaintiff aware of the factual basis upon which the question of the insurer’s liability under the policy will be determined. The fact that the plaintiff needs discovery from the respondent must inevitably mean that the plaintiff does not now know what that factual basis for refusing to indemnify is, and, if that is the case, the plaintiff cannot argue that facts material to the question of liability between the plaintiff and the first defendant are also material to the question of the liability of the respondent to indemnify the first defendant. In the absence of the plaintiff being able to make out that aspect of the application, it seems to me that the application must inevitably fail.”
The application to join the respondent was governed by rule 27.01 of the Supreme Court Rules which provides as follows:
“[R 27.01]                  Joining of plaintiffs and defendants
27.01        Two or more persons may be joined as plaintiffs or defendants in any proceedings:
(a)     where:
(i).... if separate proceedings were brought by or against each of them, a common question of law or of fact would arise in all the proceedings; or
(ii)all rights to relief claimed in the proceedings, whether they are joint, several or alternative, are in respect of, or arise out of, the same transaction or series of transactions; or
(b)    where the Court gives leave to do so.”
The power to join an insurer for the purpose of seeking a declaration concerning the liability to indemnify a defendant was confirmed in J.N. Taylor Holdings Ltd (In Liquidation)& J.N. Taylor Finance Pty Ltd (In Liquidation) v Alan Bond and Ors (1993) 59 SASR 432. The plaintiff companies sued three of their former directors alleging breaches of their duties as directors. The directors held policies of insurance indemnifying them in respect of wrongful acts committed by them in their capacity as directors of the plaintiff companies. The insurer denied liability. The plaintiffs sought leave to join the insurer as a defendant in the proceedings, but the application was refused. In allowing the appeal and in ordering the joinder of the insurer, the Full Court held that the criteria in Rule 27.01A (i) and (ii) were satisfied. King CJ, with whom Prior and Perry JJ agreed, summarised the position in the following passages (pp 440 and 441):
“Should the court’s discretion be exercised to join the insurer and to allow the claim against it to proceed in this action? This is an appeal against an exercise of discretion and the well-known principles governing such an appeal apply. Moreover it relates to a question of practice and procedure and appellate courts are even less inclined to interfere with the exercise of a discretion in that area than in other areas of the law. I think, however, that the learned judge’s exercise of discretion is vitiated by two errors of principle. First, for the reasons explained above, I think that he took too narrow a view of the scope of his discretion and may even have considered that there was no jurisdiction to entertain the claim for declaratory relief at this stage. Secondly, I think that while correctly holding, as he did, that the insurer would not be able to re-litigate the issue of the liability of the directors to the plaintiffs, his Honour overlooked that, notwithstanding that, the insurer in an action to enforce the policy would not be bound, unless a party to these proceedings, by findings of fact in these proceedings as to the nature of the breaches of duty which caused the loss. Those findings, if made binding on the insurer, might well determine whether the causes of the loss were wrongful acts within the meaning of the policy and might have a bearing on whether there had been breaches of the policy. In my opinion the exercise of discretion miscarried, and it is necessary for this Court to exercise the discretion afresh.
There are very strong considerations in favour of disposing of the issues of the liability of the defendant directors to the plaintiffs and the liability of the insurer to indemnify the directors in the one trial. The trial of the action against the directors seems likely to be very lengthy, very complex and very costly. The prospect of a subsequent trial of comparable length complexity and expense, might be prohibitive. It is clear that much of the ground would have to be covered again. In the action against the insurer, it would be necessary to prove the nature of the breaches of duty in order to establish that they amounted to wrongful acts within the meaning of the policy. At least some of the breaches of duty pleaded against the defendants could come within an exclusion in the definition of “wrongful act” in the policy, namely “acts or omissions done or alleged to have been done in conflict or in preferment of the interests of the Company over those of a Subsidiary Company or vice versa”. Some could fall within an exception to liability relating to “dishonest fraudulent criminal or malicious or wilful or reckless” acts or omissions. The resolution of those issues would involve canvassing much the same evidentiary ground as will be involved in the trial of the action against the directors.
...
For the above reasons it seems to me that the joinder of the insurer would be likely, in the event of a judgment against the defendant directors, to obviate the need for a long trial of an action against the insurer in which much the same factual ground would have to be covered. That is the cogent consideration in favour of joinder. A number of considerations against joinder require consideration.
Joinder involves embroiling the insurer in these proceedings although, if it is not joined, the occasion for proceedings against it may never arise. That is an important factor in the exercise of the discretion: AMP Fire & General Insurance Ltd v Dixon [1982] VR 833. It cannot prevail, however, against other compelling considerations: Hordern-Richmond Ltd v Duncan [1947] 1 KB 545; Mayne Nickless Ltd v Pegler [1974] 1 NSWLR 228; Reinecke v Incorporated General Insurances Ltd (1974) 2 SA 84: Corti v Rodwell [1985] VR 287.”
After discussing whether the efficient conduct of the trial would be prejudiced by the joinder, the Chief Justice observed that in the exercise of a discretion, the Court must be guided “by the overriding principle that multiplicity of proceedings is to be avoided.” His Honour said (pp 442 and 443):
“The trial of the issues affecting the insurer’s liability at the same time as those affecting the directors’ liability would undoubtedly render the trial more complex and present difficulties to both the court and the parties. In the final analysis, however, I think that the need to avoid the prospect of a second long and complex trial, must outweigh other considerations. Justice will best be served, in my opinion, by the trial and determination of the issue of the insurer’s liability to the defendant directors concurrently with the trial and determination of the issue of the defendant directors’ liability to the plaintiffs.”
The passages in J.N. Taylor to which I have referred identify a number of factors which are important in considering the exercise of the discretion. Subsequently, in Beneficial Finance Corporation Ltd & Ors v Price Waterhouse (1996) 68 SASR 19, Perry J emphasised the importance to the decision in J.N. Taylor of the denial of liability by the insurer and the existence of common questions of fact. His Honour said (p 37):
“The J.N.Taylor case was unusual in that there were overlapping questions of fact. The insurer had denied liability upon the basis that the conduct of the defendant directors was such as to disentitle them to indemnity. The same conduct would need to be scrutinised to determine whether the plaintiff’s claim against the directors should succeed.
...
The decision in J.N. Taylor Holdings must be confined to its special facts and in particular the fact that not only was there in that case a denial of liability on the part of the insurer, but the facts and circumstances relevant to the grounds upon which liability were denied were more or less co-extensive with the factual inquiry which would be necessary in order to dispose of the issues raised as between the parties in that case other than the insurer. That will not often be the case. More commonly, I would have thought any denial of liability on the part of the insurer will not involve the need to address questions of fact which are common to the questions arising in the context of the resolution of the claim against the insurer.”
Lander J expressed the view that in the absence of a denial of liability by the insurer, an application to join the insurer is inevitably doomed to failure. His Honour did not, however, expressly suggest that the decision in J.N Taylor should be confined to its special facts.
Counsel for the respondent submitted that the application of the principles in J.N. Taylor should now be confined to the facts that arose in that case. It is unnecessary for me to decide whether that submission is correct. I am bound by the decision in J.N. Taylor. In addition to the denial of liability, the issues of multiplicity of actions, the likely length and cost of proceedings and the existence of common facts are important factors in the exercise of the discretion.
Counsel for the appellant submitted that the learned Master erred as a matter of principle in taking the view that unless the facts relevant to the question of liability for damages were substantially the same as the facts determinative of whether or not the insurer was liable to indemnify the defendant, the application for joinder must fail. Counsel contended that the presence or otherwise of common facts was not determinative of the exercise of the discretion, but was merely one of the factors to be taken into account. In addition, it was said that the learned Master erred because, having found that there were no common facts, his Honour dismissed the application without properly considering the exercise of his discretion.
Read literally, the remarks of the learned Master to which I have referred are capable of being interpreted in the manner for which counsel contended. While I doubt that his Honour intended his remarks to be understood in that way, I am prepared to assume that his Honour’s approach was unduly restrictive. I have considered the application without the constraints that usually apply when the court is asked to interfere with the exercise of the discretion in the absence of relevant error.
Counsel for the appellant submitted that the learned Master was also in error in determining that the appellant had not established the existence of facts common to both the question of liability and the issue of indemnification. He argued that on the material before the Master and this Court, it is a reasonable inference that the events of the evening in question are relevant to the denial of liability by the insurer. To that extent, therefore, he contended that facts common to both causes of action existed.
During submissions before the Master and on this appeal, counsel for the respondent stated that the only basis upon which the insurer was denying liability was the basis explained in the letter to which I have referred. In that letter, the respondent asserted that prior to the inception of the insurance cover and prior to renewal of that cover, the defendant advised the respondent that the business did not engage in the activity of crowd control. The respondent asserted that such a statement was a misrepresentation because crowd control activities comprised part of the business. As a consequence, the respondents purported to “avoid the policy” from its inception. In that context, counsel for the respondent acknowledged that the events of the evening when the appellant was injured might be relevant to a determination as to whether crowd control activities comprised part of the business of the security firm at the relevant time.
In J.N. Taylor, liability was denied on the basis of conduct of the directors, which conduct was also the basis of the plaintiffs’ claims against the directors. The letter in which the respondent denies liability does not lead to an inference that the conduct or activities of the security firm at the time that the appellant was injured are the particular conduct or activities which entitle the respondent to decline to provide indemnity pursuant to the insurance policy. It is a clear inference from the letter that the respondent asserts that, at the time the insurance policy commenced and at the time it was subsequently renewed, contrary to the statement of the defendant that the business did not engage in the activity of crowd control, such activities comprised part of the business at those times. Evidence concerning the activities of the business at those times will be critical in the determination of the liability to indemnify but irrelevant to the appellant’s claim for damages. While there is the possibility that the conduct of the security firm on the occasion when the appellant was injured may have some bearing upon whether the business of the security firm included crowd control at the times the insurance policy commenced and was renewed, such overlapping will be minor and far removed from the overlapping that existed in J.N. Taylor.
Another important point of distinction between the circumstances of the matter under consideration and the facts in J.N. Taylor is the likely length of the proceedings. Counsel for the appellant estimated that the trial as to liability would take approximately one month. In addition, if the appellant is successful in establishing liability, a trial in which a declaration would be sought that the respondent is liable to indemnify the defendant is unlikely to be particularly lengthy.
I have considerable sympathy with the plight of the appellant. Understandably, he wishes to avoid the expense of proceedings which might provide a hollow remedy. However, the interests of the respondent cannot be overlooked. Almost all of the evidence concerning the liability of the defendant will be irrelevant to the question of indemnity. The issue of liability is far from settled. It is a substantial issue. If the plaintiff fails to establish liability, no question of indemnity will arise.
After balancing all the relevant considerations, I have reached the view that the learned Master was correct in refusing the application. The appeal is dismissed.

[2000] SASC 341

27 October 2000